Comovement and return predictability in asset markets: An experiment with two Lucas trees
Name:
15-10-2020_Noussair_Popescu_pa ...
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2024-04-07
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687.8Kb
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Final Accepted Manuscript
Affiliation
Department of Economics and Economic Science Laboratory, Eller College of Management, The University of ArizonaIssue Date
2021-05Keywords
Asset pricingComovement
Experimental finance
Return predictability
Time series momentum
Two trees model
Metadata
Show full item recordPublisher
Elsevier BVCitation
Noussair, C. N., & Popescu, A. V. (2021). Comovement and return predictability in asset markets: An experiment with two Lucas trees. Journal of Economic Behavior & Organization, 185, 671-687.Rights
© 2021 Elsevier B.V. All rights reserved.Collection Information
This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at repository@u.library.arizona.edu.Abstract
Using a laboratory experiment, we investigate whether comovement can emerge between two risky assets, despite their fundamentals not being correlated. The ‘Two trees’ asset pricing model developed by Cochrane et al. (2007) guides our experimental design and its predictions serve as our source of hypotheses. The model makes time-series and cross-section return predictions following a shock to one of the two assets’ dividend distributions. As the model predicts, we observe (1) positive contemporaneous correlation between the two assets, (2) positive autocorrelation in the shocked asset, and (3) time-series and cross-sectional return predictability from the dividend-price ratio. In line with the rational foundations of the model, the model's predictions have stronger support in markets with relatively sophisticated agents. © 2021 Elsevier B.V.Note
36 month embargo; available online 7 April 2021ISSN
0167-2681Version
Final accepted manuscriptae974a485f413a2113503eed53cd6c53
10.1016/j.jebo.2021.03.012